Posts tagged ‘#healthcare reform’
Five things I think I think about the next phase of health care reform
Photo by Jon Collier
This is not the end of Obamacare; it’s the beginning
In a surprising move, Paul Ryan pulled the American Health Care Act, the Republican ACA repeal and replace bill, last Friday. It had become clear that there was no movement to the left or the right that would garner enough votes to allow passage in the House. Even if it had passed in the House by moving right, much of that movement was likely to be stripped out in the Senate, where the Republican majority is slimmer, but no less internally conflicted. The president has stated he is moving on to other issues like tax reform and infrastructure building.
So you might think that health care reform on the federal level is done for now. Whether that is true or not, it is also pretty clear to me that there is still a great deal of work to do to stabilize and improve the ACA. Cost constraints are still lacking, and insurance marketplaces at the state level are still suffering from shrinking insurer participation. While coverage has vastly improved under the ACA, affordability remains elusive if you don’t qualify for a subsidy.
Where are we going next? Some (including me) are hoping that this opens the door to real bipartisan negotiation. Here’s the theory. The Trump administration cares about the appearance of winning, not ideology. If you can’t work over the Freedom Caucus to get the votes, you go to the Tuesday Group, a group of moderate Republicans. Perhaps they’ll even appeal to the next group over from them, moderate Democrats, to get onboard for something.
Here are five things I observed from this last round of negotiations:
- The Freedom Caucus has a literal interpretation of the phrase “repeal and replace”. All the rhetoric about removing Obamacare “branch and root”? Turns out it wasn’t simply rhetoric for them. They believe that Medicaid expansion to childless adults must be removed entirely, because it is enabling able-bodied citizens to get care without working for it. All the headlines about 24 million more uninsured shocked many of us, but for conservatives was actually not a bad thing, and for some a desired outcome, judging from the rhetoric surrounding the debate.
- Loss aversion works. One of the truisms of behavioral economics is that fear of loss is about three times as motivating as desire for gain. This has been shown over and over again by people like Amos Teversky and Danny Kahnemann in psychology experiments. Thus, some people didn’t like the Affordable Care Act until they faced the possibility that they would lose coverage if it was repealed. For the first time in years, public approval of the ACA is greater than disapproval. (By the way, now that the immediate threat of repeal is gone, I predict those numbers will reverse again.) If you want people to value something, don’t try to sell it to them; give it to them and then try to take it away (the Classic Coke strategy).
- Trying to sneak legislation through in the age of Twitter is like trying to sneak to the bathroom in your pajamas through Grand Central Station. Hiding stuff so you don’t get criticized for it doesn’t work. Nor does speeding up timelines for the same purpose. We may have to do this a few more times before people get it, but the old days of passing legislation that hasn’t been dissected under a microscope I think are gone. There are too many smart people out there with time on their hands and a Twitter following to feed. They have an immediate platform to do the Roman thumbs up or down on literally everything in view, and are just waiting for something to tweet about.
- The emerging centrist view is that we need to maintain coverage for everybody who has it now, but get to cost containment to make the system sustainable. In a previous post, I talked about the hard truths that both sides are avoiding by blaming the other guy. But what do we do to control costs? The conservative answer is market forces, and the progressive one is government regulation. Neither one has a great track record when it comes to health care. So what’s an industrial superpower to do? There was funding in the ACA to set up CMMI, and much of their work has been on alternative payment models intended to bend the cost curve over time. But pragmatically the experience has been mixed for medical homes, bundled payment, and population-based payment. Rollout has been slower than many would like, and affect too few providers to declare it a success. I would love to see a real and thoughtful bipartisan discussion on some hybrid possibilities.
- And there is no guarantee the next move is toward bipartisanship. Winston Churchill said, “Americans will always do the right thing—after exhausting all the other possibilities.” If the last twenty years teaches us anything, it’s that governing from the extremes doesn’t work very well. So you’d think that the next move would be to try to govern from the center. But this is one of those Clayton Christiansen moments. Christiansen says that the winners of the last game are unlikely to be the inventors of the new game, since the new game displaces the old one. The existing game goes like this:
- Point out what’s wrong with any plan offered by your opponents, which is much easier to figure out than how to make things work (boring). It also gets a lot more attention on Twitter. And, the bonus is that you get to go home to your district and tell people you stood on principle, and that everyone else has the morals of a used car salesman.
- Foment anger and frustration, and promise that you are the only person capable of breaking through the mess. Do this, while you are all the while perpetuating the mess.
- Repeat, and fund-raise.
Both parties have had the chance to be in the majority and the minority in the last two decades, and both have gotten pretty good at the existing game. It will take a sea change to find the next game that rewards centrist compromise. Here’s hoping we exhaust all the other possibilities sooner rather than later.
CBO score shows 24 million more uninsured by 2026 under AHCA
Photo by Andrew Malone
Getting everyone into the tent proves trickier than anticipated
On the surface, it can be confusing what Republicans are trying to accomplish with their recently introduced American Health Care Act (AHCA). After all, no one consciously drafts a plan to reduce coverage and raise premiums; the ever-rising cost of health care will do that quite well on its own. The CBO score shows higher costs in the near term, but then a 10 percent reduction in projected average premiums vs. the status quo in 2026. CBO also projects that we will have 52 million uninsured in 2026, or an increase of 24 million over today. As discussed in a previous post, for progressives this is ideologically unacceptable since they consider health care to be an absolute right. Others with concerns likely fear the use of the increased number of uninsured as a campaign issue in the next election cycle.
Well, exactly what were the drafters trying to accomplish? As we discussed in a previous post, many of the maneuvers in AHCA are purposed to draw in young, healthy people into the insurance pool, in order to offset the cost of older and sicker people. In the conservative view, it is wrong for government to mandate the purchase of health insurance; instead, the product must be made attractive enough that young invincibles buy it voluntarily. The increase in the allowed rating multiple from 3:1 to 5:1 does this, since having older people pay more means younger people pay less. Another measure is the $100 billion Patient and State Stability Fund, which is money in the bill that is likely to be used by some states to make reinsurance payments to health plans, thereby lowering everybody’s premiums somewhat.
So could that work? It’s possible to make insurance more affordable for the young by taking those steps, in my opinion. The problem is that those actions also have other consequences:
- First, when you shift the cost of insurance away from the young and healthy, you have to put it somewhere, and that appears to be to the old and sick. Premium projections for poor 60 year olds net of subsidies go up by about $10,000 a year. For someone in this working poor group, the premium could be half of their entire salary. As a result, CBO projections suggest that the uninsured rate for those age 50-64 making <$30K/yr. will rise from 12% to an impressive 30% of the population. Again, no plan is able to take the same benefits and make the cost lower for everyone; if somebody pays less, somebody else has to pay more. In essence, some of the people you were trying to subsidize in the first place end up uninsured as a consequence of the effort to make it more affordable for the young invincibles.
- Second, the CBO projections say that by 2020, about 9 million fewer people will be buying coverage in the individual market. By 2026, those losses shrink to 2 million less, but this is largely because the CBO anticipates some employers stopping providing insurance as a benefit altogether, shifting people from employer-sponsored insurance to the individual market. The CBO agrees that more young people will sign up, but that will be more than offset by older people dropping coverage because they simply cannot afford it. The reasons are complicated, but have to do with the CBO’s lack of confidence that the penalties in the AHCA for being uninsured will be as compelling as the individual mandate in the ACA.
The AHCA still has to work its way through more committees before it makes its way to the floor of the House. There may still be amendments and revisions along the way. There is even talk about a “sidecar” bill addressing sale of insurance across state lines and association health plans. But currently, this shift of cost from younger and healthier to older and sicker is a big issue for Democrats and moderate Republicans (not to mention AARP, who have termed the AHCA an “age tax”). That, in addition to the substantial increase in the uninsured rate, makes this bill tough to swallow for a broad swath of Congress and its constituents. Whether it can survive with this shift is something that will be hotly debated in the next couple of weeks before Congress’ Easter recess.
It’s here, it’s here, the House Republican ACA repeal and replace bill!
How it’s evolved since A Better Way
House Republicans released their draft of the ACA repeal and replace bill, the American Health Care Act, they have been working so hard on. To the surprise of many, several parts of the ACA that were in question (esp. the first two) survive in this bill:
- Essential health benefits, including maternity care
- Prohibitions on annual and lifetime limits
- Dependent coverage until age 26
- No raising rates for pre-existing conditions
- Medicaid expansion through 2020
In addition, there were things expected that didn’t materialize (both of which might be inappropriate in a budget reconciliation bill):
- Sale of insurance products across state lines
- Association health plans
In a prior post, I talked about high-risk pools, and how simply segregating people with high cost doesn’t change the overall amount paid for the care, just how the cost for that care is redistributed. What this is looking more and more like, in my opinion, is very similar coverage paid for through alternative mechanisms. Because AHCA repeals all of the ACA’s taxes on the wealthy and industry, this largely results in substantial tax relief for the wealthy, and additional cost for the sick and the poor.
In addition, since AHCA allows the premium multiple for older people to be as much as five times that for the young, older Americans on average are likely to see rising premiums, while younger ones will see reductions in prices. Again to cite the prior post, this and continuous coverage provisions are how Republicans seek to draw young invincibles into the pool, without an individual mandate.
All in all, this bill seems to me to be much closer to what John Boehner said a few weeks ago at HIMSS: “They’re basically going to fix the flaws and put a more conservative box around it.” There are ideologic points made in it. They did get rid of the individual and employer mandates, and replaced it with a 30% premium penalty for going without insurance and then enrolling when you get sick. The jury is out on whether that’s a strong enough incentive to maintain continuous coverage, as the Republicans hope. But if the penalty is only 30% for a year, then a young invincible could go without coverage and make up the penalty by staying healthy for a mere four months. Why would I buy insurance under that scenario, until I absolutely needed it? That then risks setting off a death spiral, where there are not enough healthy people in the pool to offset the cost of the sick.
Various organizations are reporting big increases in premiums are the likely result of the tax credit levels proposed, netted against the subsidies that will be lost on the exchanges, especially for older and sicker adults. Defenders of AHCA seem to imply that these increases will be offset by the appearance of cheaper policies that are the result of lifting many of the essential benefits provisions of the ACA and the formation of high risk pools. But again, recall that high risk pooling doesn’t lower overall cost per se, only who pays and how much. And as we saw at the beginning of this piece, many of the provisions that raised the cost of ACA-compliant policies are still in AHCA.
The early reporting on AHCA is that neither moderate nor conservative Republicans are happy with the bill (Democrats are counted as an automatic no). Almost certainly there will be revisions as the relevant committees get to dissect it and weigh in with changes. But it is likely that movement to the left will strengthen resolve on the right, and vice versa. The window of acceptability to both poles is likely pretty narrow, if indeed it exists at all.
Boehner says you can’t repeal and replace quickly—and he’s tried
Winning was easy. Governing’s harder.—Cabinet battle #1, Hamilton the musical
In one of the more surreal moments lately (and there have been a few), former Speaker of the House John Boehner said at HIMSS 2017 that Republicans would not be able to repeal and replace the Affordable Care Act. Here’s the quote:
The irony of this is that it was probably politically impossible for him to say that while he was Speaker. There is a scene from the Aaron Sorkin drama The West Wing in which a political consultant chides one of the characters for resolving what would have been a juicy campaign issue. “You don’t want the money, you want the issue.” The ACA was too juicy an issue to resolve in the simple manner Speaker Boehner describes, and that many of my Republican friends have been advocating for, for years. Resolving it would have removed a campaign issue that was a slam-dunk-automatic-applause-getter winner for Republicans in this last election cycle. You don’t want to resolve the issue; you want angry voters mobilized against the other guy.
But like the proverbial dog that caught the car it was chasing, it isn’t clear what Republicans can actually do quickly to unravel the complexities of the ACA. I think the ACA probably deserves a fair amount of criticism for its complexity, but then again, the issue of sustainable health coverage in the era of billion dollar medical miracles is, well, pretty complex. You want to make things affordable, but you also want to give people comprehensive coverage so they don’t worry they’ll lose everything they have in a single medical event. If you ask the American public which one they want, they’ll say, “Both, of course!” Me too. But that involves getting healthy people to buy insurance, while guaranteeing everyone can buy it, while subsidizing a fairly large segment of the population that can’t afford to be as sick as they are. Each of these aims works against the other two.
It strikes me that the hard reality of complex subjects in the nanosecond attention span world in which we live is this: it’s a lot easier in fifteen seconds to make something complex sound bad than it is to make it sound good. This is supported by a lot of neuroscience and behavioral science work in the last two decades that show that our first response to anything novel is to evaluate it as a threat, and then only when we’re sure it’s not, can we engage in rational thought. So guess which kind of problem governments typically are asked to solve?
So I don’t blame John Boehner for not saying what he said at HIMSS back when he was Speaker. After all, he didn’t make the rules, he just played the game as well as he could. The bigger question is, how do we reduce the reward for making complexity bad, and increase the reward for thoughtful problem-solving?
Is A Better Way Actually Better?
Is Paul Ryan’s world view a place we want to live? We’re about to find out.
Photo by Tony Alter
In the current debate over the Affordable Care Act’s repeal and replacement, we are watching the collision of two world views. While partisans on both sides are likely to disagree, here’s my mini sketch of each of those views:
Progressives
- Health care is a right. Everyone, regardless of ability to pay, has the right to whatever the rest of us have access to.
- The main cause of the high cost of health care is profiteering by health care companies, whether providers, pharmaceutical manufacturers, or insurance companies. If profit was eliminated and health care made a utility, it would be affordable for the average American.
- The influence of the free market should be minimized in health care, since that’s the source of that unreasonable profit in the first place. Lots of entities have made lots of money trying to avoid getting people necessary care, instead of providing it when it’s needed. That’s just wrong.
- Bigger insurance pools are better, because they are more stable, have economies of scale, and it’s easier to pay for new stuff when you can spread the cost over lots of people. The best insurance pool would be one big national pool with everyone in it. This is called a single payer solution.
- Government systems are less expensive and fairer than private systems, because there isn’t a profit in government enterprises. All that running away from expensive people that private insurances do? Government aren’t allowed to do that.
Conservatives
- Health care is a right, but it comes with responsibility, too. You should get access to care if you participate in the system. It’s your individual responsibility to take care of yourself so that you’re not needlessly draining our shared resources. This includes working to the degree possible so that you’re paying your own way as much as you can.
- The main cause of high cost in health care is overregulation and litigation. If health care weren’t so burdened by trying to prevent things that are almost never happen in the first place, and provide services you didn’t ask for, the cost would be much lower. That overregulation also stifles innovation and competition, which is what makes goods and services in this country affordable for the average person in most other industries.
- The road to restoring affordability is to unleash the power of the free market. First, make people spend more of their own money using Health Savings Accounts. Then they’ll care about the price of medical stuff, which they don’t right now because insurance pays for most of the cost. And people will only shop effectively if they’re spending their own money, not somebody else’s.
- If you truly can’t contribute to your own health care cost, we’ll give you the money to do it through refundable tax credits, and then you can shop for your own care. After all, who can shop for you better than you? Inevitably when government shops for you, they do a bad job and load a bunch of requirements and benefits in there that don’t address your individual circumstance. That’s waste, and it’s expensive.
- Private insurance is the best vehicle to cover everybody where possible. This is because private vendors respond to customer needs much more quickly and nimbly than governments can. Yes, there is profit in health care, and there should be. Why else would anyone redesign a system to make it more efficient, if they didn’t get profit as a reward? Price controls simply create more friction and waste in the market, as people will find a way to get what they want one way or another.
Who is right about this? Which world view is most true to reality? I think there are elements of truth to both points of view. But there are also a few inconvenient truths that neither side wants to acknowledge:
- For progressives, the profit in health care is a problem, but mostly they talk about that profit in drug/device companies and insurers. In fact, most of the profit in health care is in providers. For example, where are we more different from western Europe, the amount of stuff we use, or the prices of that stuff? It turns out that it’s the prices of the stuff that account for most of the cost variance. When you look at the amount of stuff we use like hospital days or doctor visits, we actually look pretty competitive vs. western Europe. This was the source of Uwe Reinhardt’s Health Affairs article in 2003 entitled, “It’s the Prices, Stupid”. Providers in our systems, whether doctors, nurses, or hospital administrators make much more than their counterparts in other countries, and that’s all loaded into the cost of insurance.
- For conservatives, the evidence that markets in health care operate like other goods is quite limited. Some will say: “Look at Lasik! Look at cosmetic surgery! You can’t tell me that medical services are that different.” They’re right, Lasik and cosmetic surgery in particular are a lot like other discretionary goods, say, the eyeglasses and make up they replace. You get to elect to use those goods or not, and you can shop for them by comparing prices for a standard, understandable service or set of services. But much of the rest of medicine isn’t that kind of shoppable service. Rolling into an emergency room, nobody comparison shops and asks to be taken to the next emergency room because of price. Then, after you start treatment, a lot of your purchasing decisions are made by your doctor, using your Mastercard (insurance) liberally. Not the price-regulating market proponents would like to see. Try this sometime: ask your doctor what a particular procedure or drug costs. Mostly you’ll get blank looks, or a reassurance that your insurance will pay for it. But actual prices, not so much.
- For everybody, the rapidly increasing cost of health care has a lot to do with our rapidly increasing ability to actually stave off death and cure stuff with technology in ways that are downright miraculous, in addition to insurance company profit and filling out forms for burdensome regulations. Stuff like being able to cure cancer or hepatitis C, or turn AIDS into a chronic disease. Would we be willing to forego such miracles to lower the cost of health care overall? Well, that depends, for many people, on whether they can see themselves having one of those diseases. If yes, then the billions spent to develop those treatments are well-spent. If you look at where the eye-popping drug costs are these days, they’re associated with just these kinds of miracles. The adult conversation we haven’t gotten to is how much of our GDP we should devote to such miracles that will benefit an unknown few of us who could be any of us, versus broad-based benefit for the many, like improving education.
It should therefore not be surprising that there is a royal disagreement in DC these days about whether/ how to repeal and replace the ACA. The ACA is founded on a progressive worldview, and the replacement will be founded on a conservative one. And conveniently, by arguing about whose view is right, we can pretend we don’t see any of the difficult issues above, and blame continuing price increases on flaws in the other guy’s theory. But if we are to get to coherent public policy, we will have to face those truths and make hard decisions as a society. Anybody on the left or the right who claims otherwise probably doesn’t have an acquaintance with these inconvenient truths.
Undoing American Healthcare
Why assuming we’re rational about health care may be a dangerous assumption
Photo by Torbakhopper
I am reading a wonderful book called The Undoing Project by Michael Lewis, about the development of behavioral economics by two of its pioneers, Daniel Kahneman and Amos Tversky. One point of their work over five decades is that while we think we make decisions rationally and objectively, in actuality our thinking and valuation of things are fluid, and uses different criteria with different weights at different times. For example, if I am weighing where to take a vacation trip, I might choose the beach if I’m particularly tired one day, but the mountains if I’m not. Both choices would be rational ones, but not consistent from moment to moment, and therefore seemingly illogical. Which do you want, the beach or the mountains? Make up your mind!
In health care reform there are many reforms that assume consistent values and rationality: health savings accounts, reference pricing, narrow networks. All these phenomena have in common a belief that if you have people spend their own money, they’ll rationally find the best value and shift their buying choices toward those that serve them best. But what if the perceived value of services shifts depending on my circumstances as a consumer? For example, if I am buying a health insurance policy, and at the time I’m perfectly healthy, what would I choose? Most likely I would be buying strongly based on price at that moment. If I never see the doctor, I’m not actually buying medical services at that time; more likely I’m buying relief from worry that if I get sick I’ll go broke. In that case, I’m buying the cheapest policy available that allows me to sleep at night.
And, in that same case, let’s say I get diagnosed with diabetes while holding that cheapest policy. Suddenly my priorities shift. I now want a policy that gets me all the care I need at the lowest price. I am no longer as interested in cheapness, and more interested in comprehensiveness. Will I be able to go to an endocrinologist, or even an academic diabetes center? How low can I keep my copays and deductibles and still get the best care in my mind? My focus shifts partly from what I’m paying to what I’m getting.
There are instances where market theory seems to work well. The classic is Lasik eye surgery to correct nearsightedness or farsightedness. Market proponents correctly cite the steady drop in the cost of that service. But Lasik surgery has some special circumstances attached to it:
- First, no one dies without Lasik. I could get that procedure because I’m nearsighted, but glasses have worked for me since I was 10, so it’s purely elective for me.
- There are advertisements online all the time, and I can readily get pricing and a sense of how often a given surgeon performs the procedure. (This relates to safety and likelihood I’ll get the result I want.)
- I am spending my own money because the procedure isn’t covered by insurance in most cases, so I have a natural incentive to shop around.
But me rolling into the ED after a car accident? It’s possible that none of the three conditions above apply at that time. And thus the conundrum that our thinking when we purchase insurance policies may be different than when we consume services: which do you want, cheap or comprehensive? Make up your mind!
Pundits debate how much health care is like Lasik, and how much it’s like a car accident. Is it purely elective, or is it a bolt from the blue? Can I shop for it and control costs, or am I at the mercy of the provider in an emergency? The debate rages on, and we are about to see a shift in worldview in the federal government from a belief in health care’s unpredictability to it being elective and shoppable. Which do you think health care is, mostly elective, or mostly unpredictable?
Secretary Price’s ACA Replacement Plan
Is the Price Right?
Photo by Gage Skidmore
On February 10th, Rep. Tom Price was confirmed as Secretary of Health and Human Services on a party line vote, 52-47. As such, it seems prudent to learn a bit about his plans for reshaping American health care. The good news is that there is already a document that gives us a detailed view of what he’d like to see in law: he was lead sponsor of the Empowering Patients First Act, that passed the House in 2015. The bad news is that it’s 242 pages long. So here are some important points about it:
- EPFA has many of the elements Republicans have been clamoring for during the last eight years, including expansion of Health Savings Accounts, selling insurance across state lines, association health plans, and high risk pools.
- To replace the individual mandate, there are continuous coverage provisions. This allows insurance companies to charge a premium for those who have not had recent coverage, as a deterrent to those who would otherwise wait until they’re sick to get insurance.
- To replace the Cadillac tax on especially rich health coverage, there is a limit on deductibility of health insurance for companies. While wonks will argue about the difference between these two arcane provisions, the intent and effect of them are the same. Both are intended to blunt the effect of rich health coverage on increasing utilization. This isn’t popular with some in the Republican party, but it’s in here nonetheless.
- To replace the subsidies in the marketplaces/exchanges, there are refundable and advanceable tax credits. So instead of using federal dollars to make coverage more affordable, Dr. Price uses federal dollars to make coverage more affordable. EPFA is different, however, in that while the ACA subsidies are only available to lower income individuals, everybody gets access to the tax credits regardless of income. So even the wealthy will get some federal dollars to buy health insurance.
- EPFA contemplates the return of annual and lifetime maximums. Effectively this opens the door to “running out of insurance” again, not a comforting thought but something that will make insurance cheaper for everyone else. You get what you pay for.
- Medicaid provisions are a bit vague, but speak about states needing to submit plans to insure 90% of children under government programs or commercial insurance. Notably missing are details of coverage for childless adults, a big portion of the expansion population. This leads many to conclude there might not be coverage for those folks under a Price HHS.
There are other competing Republican plans out there, and it remains to be seen how much the final repeal and replace effort resembles Secretary Price’s plan while a member of the House. But it is noted in the press that his plan is one of the more aggressive in rolling back key provisions of the ACA. Many of these same provisions appear in the draft that just came out of the House, which was drawn on A Better Way, the speaker’s plan. 
Alternative Payment Models, Teeth, and Tires
Does the provider lose money making repairs, or does he make money?
Photo by ccPixs.com
There is a lot of talk in health care these days about paying differently for services. Like any other industry, we have our jargon: fee for service (FFS), pay for performance (P4P), bundles, capitation, population payment. All of this is confusing for the average American, and understandably so.
But no matter what we call it, there is a big difference between various ways of paying for health care. It’s actually not that different from how we buy stuff in other parts of our lives. This came home to me recently when my wife was in two situations:
- First, when she recently went to a new dentist to get a teeth cleaning, the dentist did a thorough exam. She then offered that if Marti wanted it, she would be happy to drill out some old fillings to see if they were likely to fail soon. Only by drilling them out could she be sure that the fillings were still sound or not. If there was a problem, she could refill the cavity or replace the whole tooth with a crown. My wife had no symptoms then and still doesn’t.
- She also recently went into the local tire store where she’d bought a set of four tires a few months ago, with a warranty. There was a screw in one of the tires (we have a lot of remodeling going on in our neighborhood). The technician looked at it, and after examining the screw and removing it told her that there was no leak caused by the screw, and she was good to go. No tire repair or replacement needed.
Quick quiz: which practitioner was operating on FFS, and which one was operating on a bundled payment?
If you said the first was FFS and the second a bundle, you get a gold star. The fundamental difference is that the first proposed transaction would have resulted in the dentist getting a fee for the work, maybe over a thousand dollars if it involved a crown. The second transaction would have been covered under a warranty, and so would have cost the tire shop time, materials, and labor, but would not have generated a new payment. This is the fundamental difference between FFS and bundles or capitation. Right down to brass tacks, in fee for service, every new service draws a new fee; in bundles or capitation, some or all services don’t generate new revenue. I often think I can spot FFS behavior and capitated behavior without knowing the financial arrangement, just from how the practitioner behaves in the transaction. For example, if a shop offers to do a “free inspection”, I think you can almost always expect them to come back with a recommended purchase of something from them. This is classic FFS behavior. Conversely when someone is capitated or works under a bundled payment, they give a lot more thought to the question, “Is this really necessary, or could we watch and wait to see if it’s really a problem?”
There are big implications for our health care system in the move away from FFS to bundles and capitation. I personally favor the latter, because I think it’s just too easy for American providers to order and reorder things without consideration for the financial consequences to the payer, which is increasingly the patient himself. Even if the patient isn’t directly responsible for the bill, someone pays for it, and that usually means the collective we, whether through insurance or government programs. Most people in health care reform think this dynamic is one of the reasons we spend twice as much as most countries and get poorer results: the FFS system incents people to do more, not better.
So when you go see your provider, which do they seem more like, the dentist or the tire shop? More importantly, which do you want them to resemble more?
Insurance pools: how do we pay for expensive people?
Why you can’t fool all of the people all of the time
Photo by Strolic Furlan
I think for most people including me at times, the effort to repeal and replace the Affordable Care Act is an exercise in taking something they didn’t understand well but have feelings about, and replacing it with something else they don’t understand well and will have feelings about. I could comment on the state of our legislative process that this is the case, but that’s for another day and another blog.
Instead, if you can stand it, I’m going to use this column to try to explain the difficulty in reshaping the insurance pools in the ACA. First, a few rules of economics:
And one rule of insurance:
Avoid the Death Spiral: If participation is voluntary, you better give a heck of a deal to those who aren’t likely to use any stuff. They effectively make it possible for the sick people to get what they need without going broke. In the insurance biz, when you can’t attract healthy people, it’s called a “death spiral”. If all you get in the pool are sick people, you have to charge so much that you can’t sell the product to healthy people, and that makes it attractive to only those who are very sick, which makes it even more expensive, etc. You get the idea. It doesn’t end well.
The death spiral is a big deal in the insurance and policy worlds. People spend a lot of brain power trying to avoid it. Not surprisingly, Republicans and Democrats have different solutions for the death spiral. The ACA solution was called the individual mandate, which made it a taxable event to go without insurance, and therefore if you didn’t buy a policy, you put into the government kitty to make up for the risk you didn’t assume with the rest of us.
The Republican solution involves a couple of things:
- First, you allow rates to be more different than they are now. Currently in the ACA, you can’t charge anyone more than three times the lowest rate offered to someone else for the same policy. So if I’m 60 and have heart disease, I can’t have a premium more than three times my healthy daughter’s rate. Under some Republican plans, that multiple rises to five times, which is about what the market was before the ACA. But the benefit is that should make my daughter’s premium lower.
- Second, if you take a bunch of sick people out of the general pool, you can lower the rates for everyone else, because they’re no longer subsidizing all those sick people. This is a concept called “high risk pools”, and many states including Colorado had them before the ACA.
But wait, don’t the really sick people have to pay a fortune in the high risk pool to get care? The answer is yes, but in Republican solutions, the government kicks in a bunch of money to make it affordable for the sick people as well. Since the government’s money comes from all of us, we’re still subsidizing the sick, but we’re doing it through government rather than private insurance pools. (Yes, you read that right, one of the critical features of the Republican plans is government subsidies.)
Okay, what’s not to like? We avoid the death spiral because we attracted young invincibles with low rates, we give healthy people a break by taking sick people out of the pool, and we subsidize the sick in their own special off-to-the-side pool.
Yogi Berra is (wrongly) thought to have said, “In theory there’s not a lot of difference between theory and practice. In practice, there is.” When high risk pools existed before, they were chronically underfunded, and therefore really expensive for people, such that only well-off people could afford the premiums. It was a terrible slog to go to the legislature every year to ask for more money, and you can imagine what the answer was. In Colorado at least, one of the solutions was to tax the health plans, so that—you guessed it—healthy people buying insurance were effectively subsidizing sick people in a now not-so-off-to-the-side pool.
There are other ways to lower premiums for the well. You can make their policies cover less, and then the actuaries will tell the insurance companies that they can charge less and still have a business. Annual limits, lifetime limits, stripping out mandated services that don’t apply to particular individuals—all these used to exist before the ACA but don’t now, and make insurance cheaper. They may return in a future iteration of American health care.
But the fundamental rule of insurance pools is you’ve got to come up with enough money to pay all the bills. So that makes this a key question: do we want to make insurance rates for people more alike, or more different? What is the “fairest” way for all of us to pay for care through a common pool or set of pools?
Sharing: is it going out of style?
Photo by elPadawan
Back when I was in college in a small school in Indiana, I was in a fraternity, like 85% of the kids who attended there. All the guys in my house slept in one of two “dorms”, or mass sleeping rooms in the back of the house. The freshmen slept in the “rookie dorm”, and the upperclassmen slept in the other dorm (there wasn’t another name that I recall).
But over time, my fraternity brothers started building lofts, or sleeping platforms that went over their desks, for their rooms. This allowed them to sleep in their study rooms, rather than in the communal space. I’ve been back to that fraternity house in recent years, and the dorms are altogether gone, replaced by more spacious rooms that include both study space and bed space, like more traditional college dorm rooms.
Why did my friends build their lofts? The dorms dated from the mid-20th century, and looked like what was familiar to that post-war generation: barracks. It was a bonding mechanism for pledge classes, that they had to live, eat, and sleep alongside one another. Partially as a result, I still have friends from that pledge class, and I still feel loyal to them. But sharing space also meant listening to each other’s snoring, or gossip in the middle of the night.
I think about this experience now, because that drive to not have to accommodate to others is pretty human, and very American. The lofts allowed people to have their own schedules, and not have to cooperate with one another on quiet time, etc. But since then, we’ve essentially become a country where lots of kids grow up with a bedroom to themselves. But it makes me wonder if we aren’t worse off in some ways, because having to depend on and accommodate to one another made us know one another, with all our quirks and faults on display daily. (Believe me, some of it wasn’t pretty!) I wonder if in a society based on individual empowerment we aren’t losing some of the glue that holds us together in community. Freedom is great, but perhaps some experiences that force us to accommodate to one another wouldn’t be all bad. Indeed, sharing a health care financing and delivery system appears to be one of those shared experiences that will remain for the foreseeable future.
This has relevance in the ongoing debate on health care reform. Should we have community rating, or should it be experience rating? In other words, if I smoke and am obese, should I pay more for health insurance? If so, how much more? In essence, how much can and should we depend on others’ money to bail us out when we get sick? What if it’s a disease that I’m partially responsible for causing through my behavior? What if it’s something that I couldn’t reasonably prevent or control? Are there circumstances under which I don’t deserve to be able to buy insurance, because I didn’t paid into the pool when I was healthy?
As we watch a new administration unfold, these questions are going to be terribly relevant. Clearly the Obama administration’s answers to the questions above were toward the community side. Community rating, guaranteed issue, the individual mandate, and outlawing lifetime and annual maximums are all in line with the thought: “We’re all in this together. Everyone should pay into the system, and it should be there for everyone, even if you are in some part responsible for the disease from which you are now suffering.” But reading some of the Republican plans, there is more emphasis on individual responsibility and taking consequences for not living a healthy life. Which is better? The results of the past few election cycles tell me that we don’t agree as a country on the answer to this question.
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